The private marginal benefit for commodity X is given by 15 - X, where X is the number of units consumed. The private marginal cost of producing X is constant at 10. In the absence of any government intervention, how much X is produced? What is the gain to society involved in moving from the inefficient to the efficient level of production?
What will be an ideal response?
Without intervention, optimal will be where PMB = 0. X = 15. The efficient level is X = 5. The
area beneath the PMB is gained. Gain = 25.
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